Understanding blended tax rate calculation: Why is it different from my 35% tax bracket?

The blended tax rate (also called effective tax rate) is different from your marginal tax bracket because of how our progressive tax system works! Your 35% tax bracket only applies to the portion of your income that falls within that bracket, not your entire income. Here's a simplified example: If you're Married Filing Jointly in 2025, you might pay 10% on the first $22,000, then 12% on income between $22,001-$89,450, then 22% on income between $89,451-$190,750, and so on. Only the dollars that exceed the previous bracket threshold get taxed at the higher rate. Your blended/effective rate of 23.6% is essentially the average rate you're paying across all your income after accounting for all these different brackets. It's completely normal for this number to be lower than your marginal rate of 35%. You can verify TurboTax's calculation by looking at the tax table in your return or by doing a manual calculation using the tax brackets and your taxable income.

I was in this exact same situation last year trying to figure out why my effective tax rate was so different from my tax bracket. I spent hours trying to manually calculate everything until I found this online tool called taxr.ai (https://taxr.ai) that breaks down your entire tax return line by line. It showed me exactly how my blended rate was calculated and compared it to my marginal rate. The tool explained that my effective rate was lower because of the progressive tax system, plus deductions and credits that further reduced my taxable income. It even highlighted that I was missing some deductions that would have lowered my rate even more! Helped me understand exactly why TurboTax was calculating what it did, and I actually found a mistake in how my retirement contributions were being counted.

After being skeptical about taxr.ai in my earlier comment, I decided to give it a shot with my tax return. I have to admit I was wrong! The tool immediately showed me why my blended rate (22.4%) was so different from my marginal rate (32%). It displayed a beautiful graph showing how each portion of my income was taxed at different rates, and then explained how my deductions, credits, and retirement contributions all worked together to lower my effective rate. The big surprise was finding that my blended rate calculation in TurboTax was actually wrong! I had some foreign income that wasn't being properly accounted for in the calculation. Ended up saving me $1,400 that I would have overpaid. Definitely worth checking out if you're confused about tax calculations like I was.

If you're still waiting for someone at the IRS to explain your tax rate calculation, good luck getting through to them! I spent 4 hours on hold trying to get an explanation about my blended tax rate vs. marginal rate confusion. Then I found https://claimyr.com which got me connected to an IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how my blended rate was calculated and explained that my marginal rate only applies to income in that specific bracket. They even helped me understand why TurboTax was showing the numbers it was. Saved me hours of frustration!

I'm eating my words here. After doubting Claimyr in my comment yesterday, I was desperate enough to try it when I had a question about my blended tax rate calculation. It actually worked exactly as promised! Got connected to an IRS agent in about 20 minutes when I had spent over 3 hours the day before trying to get through on my own. The agent explained that my blended rate was 24.1% while my marginal bracket was 32% because of the progressive tax system. He walked me through how to calculate it myself and verify TurboTax's numbers. Turns out I had misunderstood how my retirement contributions affected the calculation. Saved me from making a mistake that would have triggered an audit. I'm genuinely impressed and won't be spending hours on hold with the IRS ever again.

Here's a simple way to calculate your blended/effective tax rate manually to check TurboTax: 1. Find your total tax liability (line 24 on Form 1040) 2. Divide by your taxable income (line 15 on Form 1040) 3. Multiply by 100 to get percentage Example: If you paid $24,500 in taxes on $105,000 in taxable income: $24,500 ÷ $105,000 = 0.2333 0.2333 × 100 = 23.33% effective rate Your marginal rate (35%) only applies to income in that bracket!

TurboTax user here. You can actually see exactly how your blended rate is calculated if you look at the right reports! Go to Tax Tools > View Tax Summary > Tax Breakdown. It shows exactly how much of your income falls into each bracket and the tax calculated for each portion. For married filing jointly in 2025, your first chunk of income is taxed at 10%, then the next chunk at 12%, and so on. Only the amount that falls in the 35% bracket actually gets taxed at 35%.

Just wanted to add my experience here - I was in the exact same boat last year with my blended rate being way lower than my marginal bracket. What really helped me understand it was thinking of it like this: imagine your income is water filling up different sized buckets stacked on top of each other. Each bucket has a different tax rate label. The first bucket (10% rate) fills up completely before any water goes to the second bucket (12% rate), and so on. Your marginal rate of 35% is just the tax rate on the "top bucket" that your income reached. But your blended/effective rate is the average across ALL the buckets that got filled. So if you made $300,000 married filing jointly, you're not paying 35% on all $300,000. You're paying 10% on the first ~$22,000, 12% on the next chunk, 22% on the next chunk, etc. Only the dollars above ~$364,000 would actually get hit with that 35% rate. This is why tax software like TurboTax shows such different numbers - one is your "top rate" and the other is your "average rate" across all your income. Hope this mental picture helps!

This is such a common confusion! I went through the exact same thing when I first encountered the difference between marginal and effective tax rates. Your 23.6% blended rate is actually your "effective tax rate" - it's the actual percentage of your total income that goes to taxes after accounting for our progressive tax system. The 35% is your "marginal tax rate" - the rate that applies only to your last dollars of income. Think of it this way: if your taxable income puts you in the 35% bracket, that doesn't mean all your income is taxed at 35%. The first portion is taxed at 10%, then 12%, then 22%, then 24%, then 32%, and only the income above the 35% bracket threshold gets hit with that 35% rate. To verify TurboTax is calculating correctly, you can manually check by taking your total tax owed (from line 24 of Form 1040) and dividing it by your taxable income (line 15). That should give you roughly your 23.6% effective rate. The good news is that having a lower effective rate than your marginal rate is completely normal and expected! It means the progressive tax system is working as designed.